Think again

Michael Alan Hamlin

Posted on May 27, 2010

Anyone with any doubt that negative perception of a country brand has a similar negative impact on foreign investment should look to Thailand for insight. After two months of often violent political protests that shut down central Bangkok, “Thailand’s at a real risk of becoming a laggard” in the race for investment, HSBC economist Frederic Neumann told The Wall Street Journal’s Patrick Barta in a report this week. “We’ve never seen Bangkok ablaze, and there’s now a realization that there is a political gridlock in Thailand with no resolution, and so the uncertainties continue.”

Business investors hate uncertainty, and that dislike shows up in foreign investment trends. As a result of political uncertainty that threatens businesses’ ability to sustain normal operations, Thailand has received less foreign investment in recent years than Vietnam. Mr. Barta observed in his report that Vietnam is a far smaller economy than that of Thailand, and that lower foreign investment has other negative consequences, such as the inability to provide resources to rehabilitate aging infrastructure.

“One possible scenario,” he wrote, “is that Thailand could descend into a cycle of intermittent violence and unrest that lasts for years.” While some large investors-both U.S. and Japanese automakers have a significant presence in Thailand-are determined to hang on, that eventuality is not at all uncertain. Vietnam is not the only competitor in the region offering attractive labor pools and an alternative to China. Many investors have been heading directly to competing destinations for years.

It’s natural to ask how Thailand got itself into such a mess. The answer is simple greed. On the one hand are the established elites and their partner, Thailand’s powerful military. This combine believes it is best equipped to manage Thailand’s economy. With the unfortunate exception of the 1997 Asian Financial Crisis-it began when Thailand’s inflated currency collapsed following the bursting of a real estate bubble-they point to a largely sustained, rapid expansion of the economy over the last quarter century.

That expansion also benefitted the elites, making it difficult to work out where self-interest ends and national interest begins. The protestors responsible for taking over central Bangkok-called redshirts-are very clear on this issue: There’s no difference. For the elites, self-interest and national interest are synonymous. That’s an issue for the redshirts because in their view-and their view is correct-they have been denied their share of the prosperity pie.

The inspiration of the redshirts is former prime minister and self-made billionaire Thaksin Shinawatra. A former police officer, Mr. Thaksin built a fortune in telecoms, and leveraged populist rhetoric and policies-dubbed Thaksinomics-to become prime minister in 2001. The redshirts were annoyed when the military overthrew Mr. Thaksin in 2006, and subsequently a government he supported in 2008.

Unfortunately for redshirts, Mr. Thaksin’s perspective seems similar to that of the elites: What’s good for Mr. Thaksin is good for the country, and not necessarily his poverty-stricken redshirt supporters despite his populism. When the Thai government agreed to hold national elections in November to end the protests, moderate redshirts were ready to head home. But Mr. Thaksin didn’t see much for him in the deal-there was no promise to return $1.4 billion in government-confiscated assets that set the protests in motion-and he pushed supporters to continue negotiations by introducing new demands.

In refusing to accept the government’s offer, Mr. Thaksin effectively signed the death warrants of 16 supporters who died in the military operation to clear Bangkok of protestors last week. Sixty-nine others had been killed previously in fighting. While it can be reasoned that their deaths were for the greater good of Thailand’s rural poor who supposedly will benefit if Mr. Thaksin returns to power, it seems clear the former prime minister expects his interests to be served for that to happen.

As Bangkok burned last week, new and existing jobs in the automotive, semiconductor, tourism, and other industries were going up in smoke. While the government of Prime Minister Abhisit Vejjajiva now acknowledges that it urgently needs to address the growing divide between rich and poor, it needs those investment-generated jobs to do so. Mr. Thaksin’s populist policies are economic Band-Aids meant to consolidate power, not uplift his constituents.

Which of these groups truly cares about Thailand? The answer is neither. They care about themselves, and are in the process of destroying the nation’s economy as they fight over who will control it. Philippine legislators should bear this reality in mind as they meet to canvass votes for president and vice president and proclaim the winners this week and next. If they care about their country, they will respect the will of the people, and not those who think they own government and the economy.